The Odds of Facing a Tax Audit Have Rarely Been This Low

As per new data from the Internal Revenue Service (IRS), there have been fewer audits conducted last year when compared to the data of over a decade. This is probably because of the staff reductions and budget cuts.

The IRS has audited just over a million individual tax returns in the year 2016, which is the lowest value since the year 2004. This number has dropped by 16% from a year ago, indicating the sixth consecutive year of fall.

The agency put the blame on budget cuts as funds for the agency reduced from $12.2 billion (2010) to $11.2 billion (2016). Over this duration, it has lost over 17,000 staffs, including almost 7,000 enforcement officials. The IRS has a total employee strength of around 80,000.

John Koskinen, the Commissioner of IRS said that the budget cuts were imposing a cost in the range of $4 billion – $8 billion per year as uncollected taxes on the federal government. He said – “We are the only agency if you give us more people and money, we give you more money back.

It certainly is not a wise decision to cheat on your taxes, as per tax experts.

The National Treasury Employees Union’s National President Tony Reardon says – “I certainly would not advise anyone to try to beat the IRS. There are certainly mechanisms in place to deal with folks who decide they’re not going to pay.” This union represents the IRS staff and workforce from the other federal agencies.

However, most individuals don’t get a chance to cheat on their taxes as the IRS gathers plenty of details to verify the finances of the taxpayers. Employers report wages, lenders report mortgage interest, bank report interest, and brokerages report capital gains.

The IRS also has appropriate systems for finding taxpayers claiming disproportionate tax credits when compared to their income, according to the American Institute of Certified Public Accountants’ director of tax policy and advocacy Melissa Labant.

The chances of an individual getting audited increases with higher income. The audit agency audited 1.7% of returns that indicated over $200,000 income. It audited 5.8% of returns that indicated over $1 million income.

Both the rates of audit experienced sharp declines when compared to a year ago.

Corporate audits dropped 17% last year. Only 0.49% of corporations went through auditing, which is the lowest rate in more than one decade.

What’s the bottom line to this? Lipschultz said – “Taxpayers should behave no differently than the way they behaved 10 years ago.” He said if they don’t get audit letter through mail, they should wait patiently. Budget cuts imply the agency is also taking a long time to finish those audits.

 

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